GBP making gains as Germany's Chancellor Merkel raises hopes

Published date: 22/08/2019

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Once again, comments from Germany's Chancellor Merkel have given GBP a lift, with Cable pushing above 1.2210 resistance at the same time as EUR/GBP dips under 0.9090 as she suggests that a solution can be found to the Irish backstop before the end of October. Once again, her comments are light on detail, but the fact remains that with a key figure on the European side showing willingness to consider options, there is an air of flexibility which is clearly working in favour of the Pound.

We must also consider the GBP shorts are one of the heaviest positions in the market, so there is a clear risk of a short squeeze, which could see higher levels in the near term at least.

This could see Cable stretch the upside into 1.2280-90, though beyond that, we expect gains to struggle into the lower 1.2300's, if at all.

EUR/GBP demand is also likely to show its hand closer to the psychological 0.9000 level, and any push lower should also struggle to get past the lower 0.8900's in the near term.